In our company, I have seen countless cases of a situation, where there is an employee working for a some salary. They want a raise of 5-10 % (sometimes supported by immediate manager, sometimes not), which is eventually refused by one of the various degree of corporate food chain unwilling to grant off-cycle pay increases, which leads to the employee leaving the company for a better offer.

Subsequently, another person is hired to the same position as a replacement at about 20-40 % higher salary than the leaver.

Now the problem seems to lie with the pay rise policy, restricting it mostly to the yearly performance cycle (which has the benefit that employees do not need to actively open the topic, as it should be opened from the employer's side every year; and the disadvantage that the expectation that everybody performing well is expected to get something, meaning the pay rises generally do not exceed 1,5 %). Any pay rise out of this cycle needs to be approved by the CEO himself (we are talking about company with tens of thousands employees).

Now I can understand the underlying reasons how such silliness can come into existence, however my friends from other, similarly sized companies (working both in HR environments and low-to-mid management positions) indicate they suffer from exactly the same thing.

Thus my question is - why is it for a manager often much easier to hire a replacement with substantially higher salary than to give an existing employee a modest pay rise?
Are there some underlying economical factors? Or a strategy to discourage people to ask for raises? Or is this just another quirkiness of the disorganised evilp-producing factory that most corporations are?

I'm voting to close. You've asked an unknowable question. If you can focus it on something specific that could have answers that won't have to be pure speculation, edit it and we'll see what we can do.
– Chris EOct 29 '16 at 19:17

Let me say this though, I've seen what you describe. My personal feeling is that people tend to value what they don't have over what they do. We see it with romantic relationships as well as work relationships. Sometimes in manifests as hiring from outside vs. promoting, other times it's bringing in a consultant with less experience than those who work there.
– Chris EOct 29 '16 at 19:18

1

On the brighter side, the person who leaves has a chance to be the higher-paid newcomer at their next place!
– Kent A.Oct 29 '16 at 19:21

Christopher Estep - I beg to difer. I am asking if there might be some underlying factors for this - e.g. there might be some studies in Comp&Ben that say "in short-term this will save you in average X in immediate pay-rises that do not come; in mid-term you will lose Y due to costlier replacements; in long-term this will save Z for P% of employees willing to work for below-market salary. Of course if it is an idiotic whim of the sick corporate minds, then you are absolutely right - the question is in principle unknowable.
– ElesharOct 29 '16 at 19:44

2

Give one a raise and they all want a raise because everyone thinks they merit one.
– KilisiOct 30 '16 at 2:58

2 Answers
2

Why is it for a manager often much easier to hire a replacement with
substantially higher salary than to give an existing employee a modest
pay rise?

It is not necessarily easier. Right or wrong if they give someone a raise out of cycle then more requests will come in. Management figures pay one person 20% to 40% more is cheaper then paying 10 people 10%. But that just causes more resentment in the ranks and more people typically leave and replacements are hired at the market rate so they have to give the raises anyway and lose experience and incur the cost of hiring.

They may be under a cash crunch and simply cannot afford across the board raises. Or they may think 80% will work at under market rate. Either way not a good position for employees that want to stay.

At one point in time, a process for giving out pay raises was discussed, written down, and refined until it is what it is today. It served the purposes of the company well. It eliminated uncertainty, it ensure fairness, it gave managers a structure for handling one of the more tricky aspects of personnel management.

Since that process was set in stone, however, things have changed. The company has grown, the types of employees needed by the company are different, the job market is tighter, the management structure is different, etc.

A smart boss would recognize that things have changed, and that the process ought to be thrown out, revised, or replaced. But in many cases it's easier to just keep doing the same thing, rather than admit that things have changed, that the process you're so proud of is no longer a good way to do things, and that the entire organization has been making poor decisions as a result. Maybe the development of that process was painful, and involved lots of arguing and strife and negative emotions, and the owner doesn't want to open up that wound again.

Actually in our company, the super-tight restrictions on pay increases are more of a new thing. Not that it had ever been easy (easier than hiring a more costly replacement with no company experience), but it required just a few levels of manager approval, not going to the God Almighty and beyond.
– ElesharOct 29 '16 at 19:38

@JoeStrazzere "how do you know anything has changed?" John Feltz is obviously describing a scenario that could result in the situation described by the OP, not exactly what has led up to the OP's situation.
– a CVnOct 31 '16 at 15:53